Archive for February 2016

Two days back I participated in a big debate on impact of recently announced FDI in retail on cold chain infrastructure in India. A specialty magazine for the distribution and logistics scene in India had organized this debate at one of the chambers of commerce in India. Three gentlemen including a self-proclaimed cold chain specialist, an omnipresent agribusiness consultant, a retired CMD of a nationalized bank, apart from yours truly, debated on the subject which was moderated by the editor of the said magazine. Cameramen captured the hot and cold moments of the proceedings for posterity.

Like always since 1987, the year I entered the organized fruit and vegetable industry, the discussion on the subject invariably turns to proverbial 30-50% wastage of fruit and vegetables in India because of absence and / or suboptimal presence of cold chain industry in India. This wastage story is so sticky that it has now become ingrained in minds of every one who has anything to do with food and agriculture in India. No points for guessing – FDI in retail was the only panacea for this ill called f+v wastage as per our self-styled cold chain specialist and the agribusiness consultant. But this is not what I want to discuss here. Though I have always contested the 30-50% figures as physical wastage for the simple reason that everything (all qualities and grades) sells and have a market in India. Overall value loss – yes, agreed or product specific wastages – like onion stored in a traditional way –yes, agreed.

Yes, it was the onions with documented 30% plus wastage during storage that started a chain of thoughts while I started driving back to my office. What follows are my instincts derived through my sectoral experience of fresh produce wholesale and retail in India.

Let’s come back to the title of this post. ‘Wastage is good”… Just visualize and try to create a scenario on what would happen if one fine day in Year 1 the wastage in onions during storage in Maharashtra / Gujarat etc somehow (let’s say because of technology intervention) gets down to zero to from 30%. What could logically happen?

The dipped prices could perhaps be lesser then the production cost of onion resulting in huge trading loss to farmers. More suicides perhaps! (I recalled what a Malegaon farmer told me when I did a onion research for NCAER / IDFC last year. His exact words were – No one in Cities has ever died of eating costly onions but low onion wholesale prices have definitely taken lives in Maharashtra).

Reduced storage capacity and unemployment in people associated with onion storage.

Extended storage could reduction of interstate movement of onion as geographical arbitrage would be missing which will also reduce the onion areas in States like Rajasthan from where onion starts arriving when onion in stores ends in Maharashtra.

Excessive onion dehydration because of excessive availability and resultant bubble as equilibrium of flakes market will be broken.

Till I reached my office I continued to weave plethora of scenarios around excess onion supply. You can perhaps add more. Eventually I could only reach to one conclusion that “Wastage is good” in case on onions in India. May be it is not the lack of capital, knowledge and resources that has prevented Indians into investing in Onion storage mechanisms that reduce wastage but have a potential to disturb the market mechanisms.

How I wish some econometric algorithm could churn up the most likely scenario in a situation of excessive onion in the market. Are you listening NCAER?

In a way the issue of more onion supply in not much different from excessive money supply. Excess money (current chairman of Federal reserve in USA would calls it quantitative easing – printing more money in bank’s printing presses at the most base level) can solve most of the issues at individual level but on a higher level, say a nation, more money can create as many complications not only for the nation but also global sometimes. There are many instances in history where too much money led to serious and damaging consequences, such a hyperinflation and assets bubble. The bubble in the property market in USA in 2008 that caused a butterfly effect across the World, was one such consequence of excessive money supply leading to lower interests in USA. Excessive onions are no different from more money supply.

I once again repeat – above said is based on my instincts. I have seen potato and onion rates crashing at the macro and micro level because of excessive supply in the wholesale markets. Many a times instincts derived through experience are more accurate than research. I remember reading somewhere that test methodologies called agile and rapid, has lot to do with decisions based on instincts made on the fly. These are very effective methodologies. I just see a huge pool of information on food wastage which we need to mine to create more thoughts for food, particularly food for the farmers and by the farmers.

1. Non availability of economic loads at farm location. – Availability of onion is widely scattered in Maharashtra. Land holding of onion growers is very less. Most of the farmers own less than 1.5 acre land and due to unfavorable weather conditions even one vehicle of 15 MT is not available with a single farmer field at a given time. Non-availability of full truck load of fresh onions at a farm has led to concentration of onion trading at market yards. Ready availability of desirable onion lots at a market yard in case of a shortfall to make a truck load, is another big plus point. Secondly, procurement cost of small lots in a scattered environment works out to be very steep. So market yards and traders help in pooling of produce and provide infrastructure for standardized sorting / grading at one central location.

2. Marketing produce as per grade necessity of a particular market. Each market has its own grade requirement for Mahrashtra onions. While eastern / Bangladesh / Bhutan / Nepal markets prefer small sized onions, North and West Indian markets prefer bigger sized onions. Traders buy small lots from the market yards and pool the produce for sorting / grading at their pack houses and sends different grades to different markets all over India depending upon the grade requirements and price at a particular market. Onion trading involves huge risk and in depth knowledge of distant markets. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of growers or their organizations to make a significant dent in onion trading in Maharashtra. So, most of the trading is in private hands.

3.Local mandies act as a reference market to small growers. Since Maharashtra onions have an almost year round pan Indian and export clientele, no market including Bangalore, is big enough to act as a price leader. Farmers generally take reference of the local mandies rates, while traders compare rates of all mandies, including major distant and export market and then decide where to send their produce of a particular grade. Significantly, most of the growers Coops handling onions are located in Market yards where their members bring produce for auction under supervision of local APMC’s. These Coops at best act as a commission agent operating from market yards. In case they have tie ups with retail organizations like

Safal, Nature’s Basket, Bigbasket etc, they buy produce from market yards from arrivals of their own members or from arrivals at other commission agents. However, their in ability to market rejections / commercial grades through organizations like us (because of reason # 2) or at distant markets has resulted in their losses and eventual discontinuation of supplies. Due to this reason, retailers end up with relying on its onion supplies from Maharashtra traders since so many years.

4. Non sustainability of exclusive onion Coops / Associations / Producer Companies. Because of various agro-climatic reasons, onion belt in Mahrashtra is actually a scattered chunk of large number of smaller sub belts, crisscrossing a distance of almost 1000 Kms plus. It starts with Karnataka border on one side and continues till MP / Gujarat border on the other end. It almost covers all western Maharashtra and Marathwada region. For a particular distant market, for example Bangalore, most of these sub belts are active for a short period as far as fresh onion flows are concerned. Active period in some cases is only a fortnight or a month. Because of this reason, exclusive onion coops / associations have not been successful as short period of business can’t sustain their year long expenses. Many coops were organized for the purpose of purchasing / selling onions but over a period these coops have taken other businesses (credit and inputs) and onion trade because of above said reasons have been relegated to the back ground leaving field open only to private traders. In my view, multi F+V items would have succeeded as unlike onions, revenue could be expected to flow round the year. (I am anticipating sustainability problem for the Associations that few retailers or processors has formed or may form in future over the years. Selling other F & V items like tomatoes, grapes, fresh vegetables etc. through Bombay / Delhi platform shall definitely help.

5. Concentration of large storage capacities with traders. For historical and market reasons, large storage capacities for onions has remained with private traders. State Govt. and Central agencies have promoted small sized storage structures at farms which are not conducive to standardized sorting / grading at central locations by trained labor. Usually growers do sorting / grading on their own, using family and farm hands and are prone not only to errors but smaller throughput. Our recent experience of supervising sorting / grading at many locations simultaneously has not gone well from logistics point of view. Traders can buy the whole stored lots and provide sorted / graded produce to us as per our requirement at their risk and cost. We are trying to pass this role to Coops in addition to facilitating storage capacity build up at Central locations. Finance for establishing such facilities, working capital and risk bearing capacity of Coops / FPOs will have to be taken care off. (A separate post in this regard is being put up in coming weeks). Till then we may have to rely on traders or live with short supplies and / or poor quality produce.

6. Non availability of sorting / grading facilities with Co-Ops / FPOs at farm locations. Generally traders purchase un-graded produce from Mandies, then they do sorting and grading. Efforts are being made to establish sorting grading centers with some identified Coops in local market yards but it will take some time. So to ensure quality and standard packing, material has to be arranged from the traders.

7. Non availability of sale proceed in time – Can’t help but include this reason though it is very much under both organizations’ control. Major reason for antagonizing farmers or their organizations in not supplying their onion to retail organizations / processors is that they are not being conveyed sale proceeds sometimes even after 10-15 days. At Mandies they get the sale proceed (even lot wise) on the same day. In such a situation even traders will not be willing to give their produce for sale if we do not convey their sale proceed immediately on reaching of their vehicles at retailers’ end.

Looking at the situation I think it is pertinent that there are organizations who should provide advisory and service to farmers organizations in countries like India with small holdings to help them bridge these few bridgeable gaps.